With over 34 health funds Australia-wide and thousands of policies to choose from, sifting through different cover options has become increasingly more difficult, especially with the rise of "junk policies".

It can be tough finding the right level of health insurance cover that’s both high quality and affordable. Nobody wants a health policy that costs a lot and covers you for very little. It’s a jargon term, but policies like this are dubbed “junk policies”.

What are junk policies?

There are a large range of different private health insurance policies designed to suit a variety of people in Australia. Some of the policies are aimed at young people, and others are better suited to families or seniors.

A junk policy is a nickname for a type of low-cost cover that only provides cover for a small range of procedures, or perhaps only covers you in a public hospital. If the policy information doesn’t accurately represent the value you think you are getting, then you might find you’re not covered when it comes time to make a claim.

The rise of junk policies is a serious problem and has recently been highlighted by the consumer advocacy group CHOICE. According to CHOICE, a small, but increasing percentage of all health insurance policies fall into the ‘junk’ category. The main reason for concern is that many of these policies don’t provide proper protection for some of the country’s most serious health issues like cancer, stroke and heart disease. Help for any mental illnesses also isn’t covered under most of the junk policies.

CHOICE say “If you require reconstructive surgery after breast cancer, private hospital rehab after stroke, or heart surgery, these policies are useless. It’s ludicrous that consumers pay thousands to insurers for these poor-value policies to avoid government surcharges but have to turn to the public system when they get sick as their insurance is effectively useless.”

How to spot a junk policy

There are over 5,000 services in both the public and private hospital that are not covered under a junk policy. While none of the basic covers can protect you for everything, there are four particular treatments you should have in your policy:

Post-heart-attack heart surgery

Rehabilitation after a stroke in a private hospital

Private hospital psychiatric care (to treat mental illness)

Your choice of doctor for cancer surgery

Some junk policies not only won’t cover you for the above treatments, they also restrict your access to all procedures in a private hospital. These covers really only help you avoid the Medicare Levy Surcharge.

Are the Government levies and charges adding to the problem?

The introduction of the Medicare Levy Surcharge and the Lifetime Health Cover Loading ‘forced’ many young Australians to sign up for basic private health insurance to minimise their annual tax return. These government initiatives were introduced to encourage more Australians on higher incomes to take out hospital cover before they turn 31 years old. The main aim was and is to reduce the strain on Medicare.

The knock-on effect is that many Australians are taking out the cheapest private health policies purely to save money on tax, not necessarily to provide the most appropriate cover. As a result, many are opting for junk policies and are getting a shock when the times comes to claim, as their policy lacks any benefit.

So why do health funds sell these junk policies?

Health insurance premiums have been rising faster than wages, making it less affordable. The main things driving up premiums are the increasing costs of hospital care and medical treatment.

So in order to be able to offer people more affordable options, funds reduced the procedures covered under some policies. The problem is though, it’s hard to tell the difference between junk policies and the rest unless you really do your research.

How to avoid the junk policies

You may want to avoid a bigger tax bill, but is buying a junk policy the right approach? If you know exactly what you’re getting when you buy that policy then you won’t be confused or disappointed when it comes time to claim. But why not pay a few extra dollars each week and reap the benefits of extra coverage when you require medical treatment?

The best way to avoid taking out a junk policy is to establish why you want health insurance, and do some research on the policies you can afford and what they actually cover. By simply choosing the cheapest policy, you may be paying for health cover that ends up being useless. It’s not a good way to buy anything.

Deciphering what’s a good policy and what’s a junk policy can be further complicated by the fact that junk policies are not always the cheapest cover available. Clever marketing also can make you think they provide much greater cover than they actually do.

Don’t get sucked into buying a junk policy. Speak with the team at Members Own or use our online comparison system. We’ll listen to your health needs and compare a range of policies for you to ensure you’re getting the level of cover you’re expecting, for a price you can afford. And when you’re ready to make the switch, we’ll take care of it for you.

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